The Benefits of Reverse Stock Split
Stock split takes place in a public limited company when outstanding shares are decreasing in price and increase in numbers too and in reverse stock split decreases the number of outstanding shares of a company and increases the cost of each share by that factor.
Attracts buyer: The most striking benefit of a reverse stock split is that it looks very graceful to the buyers and attracts them to buy more share at a given time. It keeps the buyers away from having a negative mentality. Generally profits of the organization are shared with all the shareholders. ‘Â Net profits are premeditated according to various principles. ‘Â Net profit separated by the total number of shares proceeds the value of profit per share. ‘Â This is the dividend a joint stock company which is also enjoyed in the reverse split.
Formal Benefit: The reverse stock split has another important feature is that they it has a common seal to contract with others. The common seal can be worn by any shareholder on behalf of the company. ‘Â The close up of the company will be accordingly signed by the officials of the company.
Fluctuating nature:Many companies undertake the reverse stock split to keep their position intact in the share market. The share market is very fluctuating hence keeping a track of the reverse stock makes a company look vulnerable in the eyes of the shareholders.
Apart from few benefits of the reverse stock it has more of the disadvantages, as it creates a desperation in the market and creates a negative impact on the minds of the buyers. It cashes out on the small term businessman and reduces the number of traders. Its negative stigma is more like an epidemic which covers the whole market and almost all the shareholders somehow associated with the company gets affected.